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Module A, Paper DA1 (examination)
Incorporating subject areas:

• Interpretation of Financial Statements
• Performance Management.

General comments
The paper comprised three sections:

• Section A
  20 compulsory multiple-choice questions of two marks each.
• Sections B and C
  Three questions of 20 marks each in both section. Candidates were required to answer a total of three questions from these sections, with at least one question from each section.

The total marks available were divided reasonably evenly between narrative and computational questions.

Overall, candidate performance improved on the previous sitting, with more candidates achieving a pass. Nevertheless, the pass rate was below that of earlier sittings. The main reason for this is that, as in the previous sitting, candidates did not demonstrate a clear understanding of a range of key issues drawn from across the syllabus.

Most candidates attempted all the questions, but there were a few who did not. In some cases the answer did not indicate that the candidate had a clear understanding of the key points. In other cases the answer indicated considerable confusion on the part of the candidate.

Candidates at future sittings will benefit from noting that the requirements of the questions set can be directly traced to the outcomes in the Study Guide. When studying a particular topic, candidates should consult the Study Guide to ensure that their efforts are directed towards appropriate and relevant outcomes. If they fully understand the key points included in the Study Guide, candidates can ensure that they have covered relevant material. In addition, study cannot be confined to a few favourite topics, as the structure of the exam means that each paper can achieve wide coverage of the syllabus.

A further point to bear in mind is that care is taken to ensure that the wording of questions is clear. Thus a candidate who has ensured that their study is based on the outcomes of the Study Guide should be well placed to present an appropriate answer.

There is no doubt that candidates whose scripts demonstrate evidence of clear thought and planning tend to score higher marks. This is equally true of discursive questions (through the preparation of an answer plan) and computational questions (through workings).

Question comments

Section A

The 20 multiple-choice questions in this section were equally divided between both subject areas. They were also roughly divided between questions which tested candidates' knowledge and questions which required the application of knowledge.

As in previous sittings, performance in this section ranged from very strong to quite weak. The reasons for the range in performance have already been referred to in the introduction above (preparation across the syllabus, and focus on key points).

Section B

Question 1

The usefulness of financial statements and the accounting treatment of fixed assets, (in particular research and development, depreciation and revaluation), were tested in this question.

The first part was answered well by most candidates, with references based on the qualities identified by the Statement of Principles. However, some candidates merely referred to these qualities, without providing any development of their answer. This suggests an undue reliance on recall.

The same pattern was apparent in the answers to the second and third parts of the question. Candidates who discussed rather than described the issues scored good marks. Those candidates who scored fewer marks did so because their answers demonstrated an undue reliance on recall. A particular example of this is the fact that a number of candidates listed the criteria which must be met for expenditure to qualify for deferral as development expenditure with no further discussion. In a question such as this, it is sufficient to demonstrate awareness that specified criteria must be fulfilled, but it is not necessary to list the criteria. The exam attempted to assess more than candidates' ability to recall facts, and marks were awarded on that basis.

Question 2

The accounting treatment of leases is an important area of the syllabus, as the distinction between an operating lease and a finance lease will often have a significant effect on the balance sheet. A good number of candidates were alert to the factors in the question which indicated that the lease was a finance lease. These candidates scored good marks from a clear discussion of the accounting treatment of this type of lease. Such candidates went on to gain additional marks by applying the treatment to the lease and providing accurate calculations of the key figures for inclusion in the financial statements.

The main reasons that some candidates did not pick up marks were:

• lack of clarity about the nature of a finance lease, and the need to capitalise (and therefore depreciate) the asset, and to report the liability for future payments under the lease
• incorrect calculation and apportionment of the finance cost
• depreciation of asset over useful life, rather than the lease period (as this was shorter)
• failure to spilt the lease creditor between current liabilities and long-term liabilities.

Question 3

Although the Statement of Total Recognised Gains and Losses (STRGL) has been required for a number of years, it is perhaps an under-utilised statement. This is unfortunate because it provides useful information to the readers of financial statements. Earnings per share (EPS) is a closely scrutinised figure and is an important aspect of the syllabus. These areas were tested in this question and many candidates produced good answers, with a good discussion of relevant points and accurate calculations.

Candidates who did not obtain good marks tended to describe the statements, rather than discuss the reasons for preparing them. When calculating EPS some candidates made basic errors such as using the opening or closing number of shares (rather than the average) or an incorrect value for earnings. This meant that some marks could not be awarded.

Many candidates presented an appropriate STRGL, but a few candidates did not include both the gain on revaluation and the prior period adjustment, or started the statement with a figure other than profit on ordinary activities after tax.

Section C

Question 4

Transfer pricing is an important issue for many organisations and, as such, is an important area of the syllabus. This question tested candidates' knowledge of the fundamental issues of transfer pricing - possible bases for establishing a transfer pricing policy, the problems that may be encountered, and selecting an appropriate basis.

It is worth noting that there is a logical connection between these parts - in particular the second and third parts. Those candidates who used this logic so that their recommendation followed from the problems they identified and also used the information in the question to develop their answers obtained good marks.

Candidates who did not obtain good marks tended to present unstructured observations, suggesting a reliance on recall. Such discussions made no reference to the information in the question. This was particularly evident in those answers which discussed market-based transfer prices at length, despite the fact that the question clearly indicated that there was no external market.

Question 5

The classification of costs for decision-making was the subject of this question. The importance of this topic hardly needs to be underlined - both in terms of the syllabus and in reality. It is good to report that many candidates demonstrated a good understanding of the topic through their answers. Such answers provided clear statements of the nature, and appropriate examples, of each type of cost. This understanding was demonstrated in the calculations in part (b).

Unfortunately, some candidates did not obtain as high a proportion of the marks for part (b) as part (a). This was due to poor presentation and incorrect calculation of key figures such as the contribution from the expected sales and the opportunity cost of using the team from the other project. Very few candidates made any attempt to consider the relevance of fixed costs - yet another indication of a 'recall-based approach'.

Question 6

This question covered material requirements planning, manufacturing resource planning and optimised production planning. These are important techniques for ensuring efficient and effective production. Comments on previous questions indicated that candidates cannot rely totally on recall. However, this question allocated a reasonable number of marks for the ability to recall the facts relating to each of these techniques. It is therefore not surprising that part (a) was well answered by the majority of candidates who answered this question.

However, once again, an over-reliance on recall meant that a number of candidates did not develop good answers to parts (b) and (c). Once again, a logical approach would have been beneficial as the description in part (a) would tend to lead to a statement of the differences.

In answering part (c), few candidates made use of the information in the question. This is surprising, and leads one to wonder why candidates think it was provided.

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